Exam 3: The Internal Environment: Resources, Capabilities, Competencies, and Competitive Advantages

Understanding how to leverage the firm's unique bundle of resources and capabilities is a key outcome decision makers seek when analyzing the internal organization.

One benefit of outsourcing is that it allows a firm to focus on those few value chain activities where it can produce the greatest value.

Capabilities of an organization emerge spontaneously through the interaction of tangible and intangible resources.

Resources must be combined to form capabilities as illustrated by Subway which linked its fresh ingredients with several other resources including the continuous training it provides to those running the firm's units as the foundation for customer service as a capability.

Innovation, consumer understanding, brand-building, go-to-market, and scale are activities that P&G (Chapter 3 Strategic Focus) performs well and are examples of the company's __________ .

Core competencies are the activities a company performs especially well compared with competitors and through which the firm adds unique value to its goods and services.

When firms lay off employees they are

Case Scenario 3: B.B. Mangler. B.B. Mangler is a top U.S. business-to-business distributor of maintenance, repair, and service equipment, components, and supplies such as compressors, motors, signs, lighting and welding equipment, and hand and power tools. Customers include contractors, service and maintenance shops, manufacturers, hotels, government, and health care and educational facilities. Mangler's industry is typically referred to as MRO, which is an acronym for maintenance, repair, and supplies. Mangler states its strategy as having the "capacity to quickly offer an unmatched breadth of lowest total cost MRO solutions to business." Mangler's GoMRO sourcing center for indirect spot buys locates products through its unique database of 8,000 suppliers and 5 million products. Mangler also dominates the North American market in terms of its sheer local physical presence. It has 388 physical branches in the U.S. largest cities, including Puerto Rico (90% of sales), 184 in Canada, and five in Mexico. This physical presence also has garnered them a reputation for excellent, dependable service in their target markets, which in turn translates into a vast and loyal clientele. -(Refer to Case Scenario 3) Mangler's physical locations are best an example of

A global mind-set is free of the assumptions of a single country, culture, or context.

A major reason outsourcing is effective is that

Why is it important to prevent core competencies from becoming core rigidities?

If a firm has a service that is valuable, rare, and costly-to-imitate, but a substitute exists for the service, the firm will

Judgment is the capability of making successful decisions when no obviously correct model or rule is available or when relevant data are unreliable or incomplete.

Value chain activities in the value chain create value, whereas support functions generate costs.

Older employees are less valuable resources to firms than younger employees, because the older employees have lower stocks of knowledge. Consequently, employee reductions should begin with early retirement inducements.

Costly-to-imitate capabilities can emerge for all of the following reasons EXCEPT

The Chapter 3 Strategic Focus on P&G illustrates that the company uses its capabilities and core competencies to grow

Case Scenario 2: ERP Inc. ERPI is a leading provider of enterprise integration software (EIS). EIS allows a firm to connect and integrate processes across all aspects of its business, regardless of where they are located around the world. ERPI is a product-focused company, whereas most competitors in its market space, like Oracle, operate as "solutions companies." Oracle and Microsoft have begun to devote considerable resources to the development of and acquisition of products to compete in the EIS space. Despite these recent threats, one benefit of its product-focused strategy is that ERPI's proprietary product is generally recognized as being 200% to 300% better than competitors' software. ERPI estimates it will take 2 to 3 years for competitors to develop the capabilities needed to bring a competing product to market. ERPI invests a considerable percentage of its profits in basic R&D to support its core products. As evidence of this, among its competitors the firm maintains the largest in-house programming staff dedicated solely to the development of advanced enterprise integration software. Installation and related consulting for EIS typically cost between $100 and $200 million, with the ERPI software component accounting for about 20% of the installed cost (the remaining 80% is spent on the actual installation, not counting the value of the customer's time). ERPI's target market consists of the world's largest manufacturing and industrial firms and it currently enjoys a 60 percent market share. -(Refer to Case Scenario 2) If the time for the competitor to produce a product similar to ERPI's were 2-3 months instead of 2-3 years, which portion of your assessment of ERPI's capabilities would change?

"Motivating, empowering, and retaining employees" is an example of a capability that resides within the "Human Resources" functional area.

Interpersonal relationships, trust, friendships, and a firm's reputation are all examples of complex social phenomena that make capabilities costly to imitate.